Rahul K Mitra, Pawan Kumar, Sanjay Tolia, Amitava Sen, Suchint Majmudar and Prajwala Pai PwC Since its inception, transfer pricing (TP) has been one of the most litigated areas in the Indian tax landscape. Over the years, the TP challenges faced by taxpayers have undergone a momentous change. During the initial years of audit, the controversies arose over fundamental issues such as time period of data, choice of TP methodology, application of arm's-length range, and so on. Today, although some of these issues are attaining closure through rulings of the tax tribunal and the courts, and occasional legislative clarification, newer and more complex areas of dispute are emerging, such as the valuation of equity transfers, marketing intangibles, location savings, financial guarantees, business restructuring, high value R&D services, and others. With each passing year, the number of disputes going to the tax tribunals and the courts is mounting, and while cases are being adjudicated, the disposals have not kept pace. The recently concluded eight round of audit cycle has seen an exponential increase in the nature and quantum of TP adjustments, which would again result in considerable new litigation. One of the biggest tax disputes of recent years, the Vodafone case, was adjudicated by the Supreme Court in favour of the taxpayer. However, the relevant law was amended retrospectively to reinstate the original tax demand. Recently, the government has agreed to engage with Vodafone to enter into a non-binding conciliation to resolve the issue. Conciliation proceedings are an uncharted territory in the fast-evolving Indian tax environment and hence several stakeholders are eagerly awaiting the outcome of this development.
August 12 2013
